Malta is preparing to launch automatic enrolment, a reform that will finally bring a second pillar of retirement saving to life. Employees will see pension contributions whisked out of their pay packets - fifty euro a month is the entry ticket - and in the public sector government will even play the role of benevolent partner by matching up to one hundred euro. In the private sector, employers can contribute if they wish, though it will not be compulsory. On paper the scheme looks neat, tidy, and long overdue.

The consultation document makes clear that both employers and employees will benefit from tax credits at the same level already available under existing pension arrangements. At first glance this seems reasonable. A tax credit is a very efficient incentive-it reduces your tax bill directly. The difficulty, however, lies in the detail. A credit is only valuable if there is actually tax to pay. For a large profitable firm that makes healthy margins every year, the credit is a welcome windfall. For a small business or a startup running on wafer-thin profit-or no profit at all - it achieves very little.

On page ten, the consultation paper states that employers "will also benefit from the same level of tax credits applicable to employers in the case of other occupational pension schemes." That makes the system explicit, not ambiguous. It confirms that auto-enrolment employer benefits will match the voluntary pension model: a non-refundable tax credit. That suits profitable firms well. For loss-making SMEs, the credit is worth nothing. The benefit is explicit for some, invisible for others.

SMEs make up over ninety-five per cent of Malta's firms; many are well established but operate on tight margins. They may wish to offer pensions as a tool to retain talent, but the current design doesn't give them much to work with. The optional pension system becomes inconsequential for those not carrying tax liabilities.

There are also limits built into the system. Under today's voluntary pension rules, an employer can claim back a quarter of what it contributes for each worker, but only up to €750 per person. Contributions can also be treated as a normal business expense, but only up to €2,000 per employee.

The benefits are entirely out of reach for firms without taxable profits. Everyone may put money in, but only some see anything back. It chips away from small and micro enterprises contributing and is directed towards large and profitable firms and not micro and small.

The consultation is explicit about contributions and deductions, but silent about alternative remedies for SMEs: no refundable credits, no credit carry-forwards. Without these tweaks, the policy is geared towards the already prosperous, while the young and flexible firms - where innovation thrives - receive merely the notion of support, not the substance.

Automatic enrolment has the potential to reset Malta's pension landscape. It can build a culture of saving, provide security in retirement, and create a true second pillar alongside the state pension. But to achieve that, the mechanics must work for all players. If the benefits are skewed towards firms that are already profitable while the vast majority of smaller businesses see nothing, participation will falter. Policy credibility depends not only on the headline but on the fine print.

A tax credit regime that ignores the financial realities of SMEs is not really an incentive at all. If the government wishes automatic enrolment to be a success, it must ensure that every employer - profitable or not - receives something meaningful in return for their contributions. Otherwise, the reform risks becoming another well-intentioned idea that looked good in theory but failed to deliver in practice.

David Spiteri Gingell was Chair, Pension Reform Commission (2004-2012) and Member, Pension Strategy Group (2013-2021)